- Weak end to 2024 thanks to litigation costs and vaccine slowdown
- But forecasts for sales and profits in 2025 exceed analysts’ forecasts
- Dividend increased and first major share buyback since 2013 is launched
- Drug giant also raises medium-term sales goal
“GSK shares are pulling further away from January’s four-year low, thanks to full-year results for 2024 that are no worse than feared and forecasts for 2025 that exceed analysts’ expectations,” says AJ Bell investment director Russ Mould.
“Concerns over Chinese market for vaccinations, and the impact upon American demand of the possible appointment of Robert F Kennedy Jr. as the Secretary of Health and Human Services in the US, still linger, and GSK has to prove its drug development pipeline is packed with new blockbuster treatments. An increased dividend and the launch of a first major share buyback in more than a decade suggest, however, that chief executive Dame Emma Walmsley believes the FTSE 100 member is in rude health.
“For 2024, increase in sales of 7%, core operating profit of 11% and core earnings per share of 10% all met management’s guidance and analysts’ forecasts. Even if they came in at the bottom of the range that still helped to soothe investors’ nerves, which had jangled amid signs of a slowdown in demand for vaccines in China, confirmed overnight by America’s Merck, and a change in regulatory guidelines for COVID jabs for the over-60s in the USA.
“The vaccines business, where GSK is among the global leaders, did show a second consecutive sharp drop in sales in the fourth quarter, thanks to a 19% decline in sales of ‘flu jabs and a 52% plunge at respiratory treatment Arexvy. However, the Specialty Medicines business helped to take up the slack, thanks to a surge in the sale of cancer drugs Jemperli and Zejula.
Source: Company accounts
“To offer further encouragement, Dame Emma offered a more optimistic outlook than expected for 2025. The company steered expectations towards an increase of 3-5% in sales, 6-8% in core operating profit and 6-8% in core earnings per share, compared to analysts’ estimates of 2%, 6% and 5%, respectively.
Source: Company accounts, Marketscreener. 2025E based on mid-point of management guidance given alongside 2024 results.
“This confidence is reflected in an increase in the full-year dividend for 2024 to 61p a share and a target of 64p for 2025.
Source: Company accounts, Marketscreener. 2025E based on management guidance given alongside 2024 results.
“The latter figure equates to a 4.4% dividend yield and GSK intends to supplement that with a £2 billion share buyback over the next year and a half, a sum which represents 3.5% of the company’s stock market capitalisation. The buyback is GSK’s first major cash return to investors via this mechanism since 2013 and comes even though cash flow was not as robust as hoped in 2024.
Source: Company accounts
“Such largesse shows management’s faith in GSK’s financial position and its future pipeline of new drugs, which the company continues to develop through its own research and also acquisitions, such as Tesaro, Affinivax, Bellus Health and now this year’s $1 billion swoop for IDRx.
“The company seems to be through the worst so far as the American lawsuits regarding Zantac (ranitidine) are concerned. GSK settled more than 90% of the cases in the third quarter at a cost of $2.2 billion. That was a lesser sum than many had feared and even if a final decision on the remaining cases in Delaware has been set for the summer GSK has worked to bolster its balance sheet. Organic cash flow has helped here, as has the demerger of the consumer healthcare Haleon, which took a chunk of debt with it.
Source: Company accounts
“For all of this progress, GSK’s shares still trade at a valuation discount to AstraZeneca and global pharmaceutical peers such as Denmark’s Novo Nordisk, Switzerland’s Roche and America’s AbbVie, Merck, Pfizer and Bristol-Myers Squibb. To reduce, or eliminate, this ratings gap, GSK will need to demonstrate a faster growth trajectory, and, in this respect, shareholders will be pleased to see Dame Emma increase the sales growth target for 2031 to £40 billion, compared to the prior goal of £38 billion. That represents a compound annual growth rate of 4% a year, using 2024’s total of £31.4 billion as a base, and much will depend upon GSK’s drug development pipeline across GSK’s four target therapeutic areas of infectious disease, HIV, oncology and respiratory/immunology. At the third-quarter stage, GSK had 82 products in Phase I, II or III trials with a further six in registration.”
Source: Company accounts
